LVR starting to put bite on house affordability

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Affordability of home loans is worsening in Palmerston North and a lack of housing stock for sale in the region is becoming a concern.

The concerns come in the wake of the Reserve Bank's housing handbrake on loan-to-value ratios (LVR), which came into effect in October.

Roost's Home Loan Affordability reports released yesterday said affordability worsened in 12 out of 24 regions throughout New Zealand in October, including Palmerston North, as small income increases only partially offset the effects of higher house prices.

In the first month of LVR changes house prices increased by 3.1 per cent in the Palmerston North market. This was the main cause of the 1.1 percentage points increase in the percentage of income a median mortgage now takes out of a median income.

That number now sits at 41.9 per cent, 1.9 percentage points above what is considered affordable by Roost, but still in the top half of 24 regions in New Zealand in terms of affordability.

Roost Mortgage Brokers spokeswoman Colleen Dennehy said banks' lending and marketing strategies had been shaken up by LVR, which was making it harder for people to get mortgages.

"Banks are being choosier about who gets a loan and what their interest rates will be," she said.

Real Estate Institute Manawatu spokesman Andy Stewart said it was important not to read too much into "a blip" of a month and the next few months would provide a bigger picture regarding the effect of LVR changes in Palmerston North.

"I don't really think there has been a noticeable increase in housing prices in Palmerston North but there was a little spike last month.

"It's the listings that are coming in that are the worry for me. We're definitely down in terms of the numbers of houses being listed and that will affect sales and prices in the coming months.

"Whether it's a result of LVR I don't know but it will have an impact on the Palmerston North market."